• Businesses sentiment is buoyant in the U.S.
  • USD wanes with Trump euphoria
  • Political risk remains in focus
  • JPY poised for a rally?

U.S. small business confidence rocketed to a 12-year high, helping the dollar recover from losses overnight. The survey of small business sentiment confirms that business owners are much more confident following the election.

Overnight USD weakness does reflect some concern for investors that the dollar may be slotted to lose the momentum it has kept since the election. A pullback in the greenback would certainly not be surprising given the meteoric rise it has enjoyed in the last two months. As investors consider and reconsider their bets on the USD, they will look to President-elect Donald Trump with increased scrutiny. Politics takes precedence once again and investors will closely watch the President-elect’s press conference tomorrow.

Brexit concerns continue to weigh on the pound, which has stabilized after a rocky morning. Economic data from the U.K. will be released early tomorrow morning pertaining to manufacturing, trade, and industrial production. These figures have been surprisingly solid since the vote to leave the EU, but if these fundamentals begin to erode we could see sterling weaken further.

Political risk extends beyond Brexit and the President-elect with fresh headlines on the elections in France. Far right candidate Marie Le Pen said in an interview that French banks have refused to meet with her, despite the fact that they’ve funded all of her opposition candidates. While Le Pen criticizes the move as a threat to democracy, the banks are making a clear distinction that they do not support her anti-euro platform which could jeopardize their financial stability.

The dollar has been quite volatile over the past two months, especially against the yen. USD/JPY has been a good proxy for USD strength post-election, rising from pre-election levels around 103 up to the 118s just a week ago – however this trend may be regressing. The dollar’s broader loss of momentum has pushed the pair back into the 115s, and investors continue to favor safe haven yen and gold.

EURUSD: The euro has appreciated across the morning and looking to test 1.06.

GBPUSD: Sterling remains vulnerable to further pressure from Brexit concerns.

AUDUSD: Aussie dollar taking early morning gains in the context of a weaker USD.

USDCAD: CAD also benefitting from a weaker USD, testing daily lows around 1.32.